The Fed’s Real Mandate, by Mark Thornton

The Fed is an arm of the government. It helps fund the debt, bails out connected cronies, and supports politicians. From Mark Thornton at mises.org:

he Federal Reserve has a legal dual mandate to minimize unemployment and price inflation. The current “dual” between the two mandates is to reduce price inflation by increasing interest rates to increase unemployment and kill businesses to choke off aggregate demand. This has been the most important economic and investment issue this year and this dual minimization procedure has dominated Fed policy for at least three-quarters of a century.

This is odd given that the Fed is in the business of creating money, the cause of price inflation, and it is responsible for all the largest surges in unemployment since its founding in 1913. Employing an army of monetary economists, macro theorists, and statisticians, the Fed appears to be pursuing its quixotic quest of the Phillips curve sweet spot of minimizing inflation and unemployment.

The real mandate of the Fed is serving its masters, the political elites, by financing government spending and debt, bailing out cronies, and supporting the political process, including the Fed’s own interests. Everything else, including the inflation and unemployment rates are derivative of the primary mandate. The so-called dual mandate is just subterfuge to protect the Fed’s “confidence game.”

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3 responses to “The Fed’s Real Mandate, by Mark Thornton

  1. I often claim that the “marriage nuptials,” entered into by bankers and key members of the nation’s politicians in 1913, were rather simple ones. In exchange for politicians vowing to provide them the exclusive “franchise” for determining the amount and price of money and credit, the bankers were to “vow” to provide as much of it at the right price as was demanded (legislated) by the politicians!

    These vows have subsequently served to finance almost the “entirety” of WWI, precipitated the “Great Depression,” underwritten the growing and seemingly unstoppable welfare state, and served to fund every cockamamy scheme and political pork imaginable!

    Perhaps the only time these “nuptials” might be argued as having been broken, was when FED Chairman, Paul Volcker, with Reagans’ unprecedented acquiescence and support, endorsed Volcker’s dramatic dealing with the inflation that previous adherence to these nuptials had caused.

    One can only fearfully speculate what it will take to deal with what these nuptials have precipitated SINCE Volker’s time at the Fed!

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  2. Yes! And spark a return to the “pre-nuptial” agreement – i.e., the Constitution!

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